Guest Blog: Tori Baker on Exhibitor/Distributor Price Fixing

For those of us who follow the politics of theatrical distribution in the United States, the recent controversy about Disney’s required terms for showing “The Avengers” struck a chord. The dynamics between exhibitors and distributors have always been fraught, and this is only the most recent example. John Fithian, the head of the National Association of Theater Owners (NATO), has publicly pushed back at Disney’s latest demands, but as Tori Baker of the Salt Lake Film Society points out, this is an issue that affects all exhibitors, not just the big chains. Her open letter to the art house community on this subject is reprinted (with her permission) below.

I have just returned from CinemaCon a few weeks ago and I am astounded by the volume and “billions” talked about at every corner of that event, from studios, from executives, and from those operating the larger chain for-profit cinemas. At one point someone used a great classic film as an example of something “lame” and proudly touted an action super-hero movie as “awesome.”

While the mission driven art house cinemas are not exactly playing on the same playing field, the issue of price fixing, as pointed out by John Fithian in his response to Disney, is a valid concern for us as well. Unfortunately for all exhibitors, the reality is that if ANY studio changes their terms or makes other demands, the entire food chain of studios, mini-majors and indies end up following their lead. It reaches the independent film world very quickly.

We saw this happen when Warner Independent started the trend of booking the larger-Indie films on national vs. platform releases and started the trend of “flat” pricing vs. tiered pricing. Pricing trends last, whether or not the studio does. Who among those that play mini-major content and Oscar titles doesn’t pay aggregate settlements now? That day of “Slumdog Millionaire” making higher margins for us in the 4th week, just when it’s gaining Oscar buzz, no longer exists.

In 2008, due to the bad economy, Salt Lake Film Society’s aggregate film rental skyrocketed from 41% to 48% (SLFS does get the Oscar bait titles and plays over 250 films annually with approximately 7% of them with mini-majors). It amazes me that the major chains can pay near 60% “agg” (aggregate film rental) throughout the year on content that grosses an average of $187 million in the opening weekend and will likely net $439 million US, when my average agg is at 48% (only 12% margin difference here) and the largest release we opened last year was “The Imitation Game” which grossed $80 million US. And for those art houses not getting Oscar content, 8 years ago our smaller content agg was 31% and is now 39%, so the smallest distributors are increasing their percentages just as fast as the big-boys. Those smaller distribs may in fact have more to loose as individuals and have content that is more difficult to sell, but those films are our wheelhouse. They are also the films that take dedicated time, effort and local outreach to interest an audience.

There is no rational reason for margins that are consistent with Disney or any other large studio. Considering that Disney will at least make sure Avengers is marketed so deeply that pretty much no one is going to miss it they have invested on their box ROI. Our larger settlement distributors do a good job at investing as well, but as a third tier market most small marketing efforts by smaller distributors have little or no effect locally, instead our art house has dedicated marketing department efforts and community relations that turn out audiences consistently. But still the trend has always been that the margin gap isn’t large. Distributors use the trendsetter (Disney in this case) as a precedent, and raise their own terms to match. Exhibitors have little, if any, room to negotiate. The exhibitors’ only alternative is a negative – we can only say “no, we won’t play that film” and thereby cut off our supply of content.

The reality of the exhibitor/distributor relationship is that we need each other to thrive, but exhibitors have not diversified enough to protect or leverage. We have one need, and that is content. Distributors, on the other hand, have diversified. They create the content and while they do need exhibitors to get a fast world-wide return on their investment, there’s an ever diversified landscape for them on how they make that ROI. There are many mediums to release their content, they can make revenues on product associated with content, contract deals with McDonalds, you name it. Exhibitors are relegated to being the marketing department for distributors. Theaters create buzz, validity, and events surrounding the product allowing distributors to get a faster ROI and to get higher margins in more diverse outlets.

I wish John Fithian and NATO great luck in working with Disney on this issue. Globalization is absolutely changing the landscape of Hollywood cinema. It is still mind-boggling how much money can be made. He should protect what he can for theatrical exhibition, and we should support that where we can. “Avengers” is just Disney’s test “hulk.” Disney wants to push the profit threshold on this film so that it is staged to do so again on “Star Wars.”

Even if studio heads personally love movies, it’s not about the content any longer. It doesn’t matter if they’re selling movies or microwaves, what matters is the margin, the global-take of that margin, and the rapidity with which they can yield that margin. That is what their shareholders want. That is what drives and that is what Studio Chiefs are held accountable to.

That makes what we, as community art houses, do more important than ever.

My biggest takeaway from being in the realm of NATO and the “big-boys” (and trust me, it is a boys club) is that Art Houses are the innovators of our industry. And, as much stress as you may personally have sustaining your art house, it is a passion-based stress that is life-fulfilling. How the profit-based stress must be so empty.

So, whether or not the price-points shift, pricing and contracting structures shift or some other uncontrollable market-force happens, ultimately Art Houses have the versatility to dig deep into their communities to find how and more importantly WHY to bring in audiences to the experience of seeing movies on the big screen. We perceive ROI differently than these large corporations that track their numbers in billions. For us, ROI is not a profit margin, rather it is meeting community demand, being relevant presenters of contemporary cinema for our community and playing what’s the best in content from emerging contemporary artists in American and international cinema, what’s historic from collections of archives, and what is in the zeitgeist of our own community.

We were the first ones to put luxury into an experience at the movies; whether it was with coffee, restaurant-service, or creative concession offerings. We are on the cutting edge of social media use in this space. We are nimble, responsive to our communities, and active with our patrons. We know them by name. We out-think, out-last and live outside the space these “Avengers” films inhabit. Does their space affect us? Yes. Sometimes greatly, as with pricing. Still, be the best you can be locally, and that will start to matter less and less each day.

It is my goal that Salt Lake Film Society one-day achieves being a purely curatorial exhibition space – with a diversity of revenues, indispensable mission/venues and a vision for location-based cinema that allows us the freedom to show what we want vs. be dictated content by a ever-moving, profit-based pipeline. I look to a future where my programmers have more freedom to choose what we want, where the value of my dedicated patrons and internal local audience outreach is seen as valuable, and where we have more freedom to say “no” to even high-earning films if they don’t reach our standards of artistic merit, critical merit, festival/awards history or community demand. So, reach out to the members, donors and film lovers of your art house community, and let’s reach for that goal of autonomy of programming and increase the impact of cinema we exhibit.